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Credit card interest is expensive, but you can reduce or eliminate it.
Credit card interest rates may edge lower in 2024 with expected federal rate cuts, but credit card interest, even at a lower rate, is best avoided. After all, any interest you pay is still money out of your pocket.
Ideally, aim to pay off balances each month to avoid interest charges. But if that isn’t possible, there are ways to reduce the interest you pay.
Credit card interest rates are often some of the highest rates you can pay to borrow money. What makes credit card interest so troublesome is compounding.
When you’re charged interest on your credit card, the amount is added to your balance. And when you carry that balance month to month, you’ll pay interest on interest. That’s part of why it’s so hard to get out of credit card debt.
The best way to handle credit card interest is to avoid it in the first place. That means taking advantage of your card’s grace period and other no-interest options, always paying your bill in full and on time, and moving balances to 0% balance transfer cards as necessary.
Credit card purchases have a grace period of at least 21 days with no interest charges between the end of your card’s billing cycle and when your credit card bill is due. In other words, you won’t be charged interest on your credit card balance until after your payment due date.
If you carry a balance, you will lose your grace period. Interest charges will apply to the unpaid portion of your balance and to purchases in the new billing cycle starting on the date of each purchase. Note that credit card grace periods only apply to purchases, not to cash advances or balance transfers.
You can use your credit card’s grace period to your advantage by timing a purchase for the day your statement period opens. Then you get more than a month and a half to pay it off before interest charges apply – your entire statement period, plus the grace period of at least 21 days.
Need more time with no interest? Some credit cards offer introductory interest-free periods of 12 to 21 months. With a 0% annual percentage rate card, you can make monthly payments on your balance and won’t be charged interest until the introductory period ends and the regular APR applies.
The simplest way to avoid credit card interest charges is never to carry a balance. You can do this by:
If you’re planning a balance transfer, consider whether you can avoid running up card balances again, says Jeff Richardson, VantageScore’s senior vice president of marketing and communications. “A concern is going back to that card that doesn’t have a balance,” Richardson says. “Now you have two balances, two interest rates, and it really will begin to be a challenge to meet those obligations.”
If completely avoiding interest isn’t your reality right now because of financial pressures, how can you reduce the credit card interest you pay? Decreasing your debt by consolidating it or making extra monthly payments can help alleviate interest-rate stress.
“First and foremost, pay down those balances as low as you can,” Richardson says.
Here are some ways to reduce your credit card interest charges:
It is possible to negotiate lower credit card interest rates with your card issuers to help you put a bigger dent in your debt.
“The higher the interest rate, the more of your payment goes to the creditor and not to your balances,” Richardson says.
Start with the card you’ve had the longest that has a strong payment history. You could also begin with the credit card that has the highest rate unless you haven’t had it long.
Call the credit card issuer and ask for a lower interest rate, explaining why you are seeking a reduction. Generally, issuers are amenable to interest-rate breaks, though Richardson says getting one may be easier for borrowers with low-risk behaviors. Low-risk borrowers tend to have low balances and don’t miss payments.
Ask politely what the issuer can do for you, Schmoll says. “Remind them of your history with them, especially if you’ve been a good customer,” he says. “If there are extenuating circumstances, explain that to them. The bank will obviously prefer earning a little less in interest over the potential of you defaulting.”